The Problem: Environmental Cleanup Liabilities Often Attach to Heirs, Beneficiaries and Surviving Partners
Posted: December 1, 2011The environmental cleanup issues associated with business succession and estate planning are real, and need to be planned for. The problem of unintended environmental cleanup liabilities, which are often financially devastating and can attach merely by becoming an “owner” of a contaminated parcel, can be very significant. (See previous blog post, “ToxicEstateSuccession.com”)
Individuals or entities that might otherwise have no prior relationship to the site or its contamination may nevertheless inadvertently become liable for 100% of the cleanup costs of soil, soil vapors and/or groundwater, merely through the acquisition of ownership of a parcel. This contamination problem can potentially even migrate far off-site and range into multiple millions of dollars. Likewise, surviving business partners can be left “holding the bag” on contaminated parcels upon the death of a business partner, merely by failing to adequately plan for potential environmental contamination issues in the company’s “Buy-Sell” documentation and in the company’s business succession strategy.
In the estate planning process, heirs or beneficiaries that become “owners” of contaminated properties, or who continue as “operators” of businesses that continue to contaminate, will be brought into the environmental cleanup liability scheme even if such parties had never previously had any liability for the subject properties. As an owner or operator, the heir or beneficiary might be liable, personally, for the entire cost of cleanup. This can occur even if the remediation costs are more than the total estate assets distributed to the beneficiary.
In the business succession context, a surviving business partner may find that the business left to him by the deceased business partner may well be saddled with significant environmental cleanup liabilities. Furthermore, if the partners do not properly plan for dealing with contamination issues at death, in the Buy-Sell agreement or otherwise, the surviving business partner(s) may find that he/she/they are stuck paying an inflated price (since the valuation doesn’t account for environmental cleanup liabilities) in the buyout of the deceased partner’s ownership interest. The surviving partners may even be forced to sue the deceased partner’s estate.
These potentially devastating situations can usually be avoided, simply by planning for how to deal with environmental contamination liabilities as part of the estate and business succession planning effort. Moreover, this analysis is so fundamental, and often so critical, that the legal, accounting and financial professionals responsible for the succession planning for a particular business or estate may find themselves personally accountable to their clients, and potentially facing errors and omissions exposure, if they do not include environmental contamination concerns as an integral part of the planning process.
In my next blog post I will set out various strategies for identifying contamination issues early, including a checklist for individuals, business owners, estate planning professionals and financial advisors.
(As noted in our first blog post, we invite each of you to participate by sending us your comments on this blog site, so that we can converse with you. While your posts – and our replies – will typically remain available only to us, we will occasionally post your blog comments, as well as our responses, to further the education of our readership. However, our blog outreach focuses mainly on our own periodic blog posts, which will each describe certain environmental contamination issues faced in the business and estate succession planning arena, ways to plan around these issues, and ways to minimize the unintended transfer of environmental cleanup liabilities to business partners, beneficiaries and fiduciaries. It is our intention to use this blog as the opportunity to begin organizing and coordinating the establishment of “working groups” in various regions throughout California and other states, to jumpstart this BEST PRACTICES approach throughout the country. This effort includes seminars, conferences, workshops, webinars and written articles.)
Beginning Our Discussion Of Contaminated Real Property Concerns In The Business Succession And Estate Planning Process
Posted: November 11, 2011ToxicEstateSuccession.com is a blog site our law firm has established to bring BEST PRACTICE strategies to business owners and real property investors (and to the professionals in the business and estate planning communities) to protect against the potentially devastating consequences associated with the transfer of contaminated real property upon the death of the business owner or investor. Through this site we will help ensure that the liability implications of potential soil and groundwater contamination are more regularly included as a primary consideration in the typical succession planning process for businesses and estates, especially in the context of Buy-Sell agreements, trust relationships and real property transfers at or before death.
Our firm has decades of experience dealing with environmental cleanup issues, and we long ago identified the critical need for inclusion of these environmental concerns in the estate and business succession planning process. We are particularly concerned about the typically avoidable, and often tragic, consequences we have encountered when business and estate succession planning does not include an in-depth focus on the real property contamination issues that may arise, or attach, upon the death of a business partner or family member.
We offer up this site as the beginning of a dialogue, starting in California and expanding nationwide, on how best to address these issues. As these outreach efforts begin to mature, we will work with professionals throughout California, and in other states, nationally, to encourage BEST PRACTICE PROTOCOLS, through the provision of in-person training sessions and seminars, video and audio webinars, and the publishing of articles. We expect to help train professionals and bring basic common sense advice to business and property owners themselves, and their business partners and personal beneficiaries, as a means of combatting this often devastating void that is usually left unaddressed in the business and estate succession planning process. We invite business and property owners, attorneys, accountants, insurance specialists and other professionals to join us in this quest to include environmental contamination issues in the business and estate succession planning process.
As we move forward with this outreach effort, we also invite each of you to participate by sending us your comments on this blog site, so that we can converse with you. While your posts will typically remain available only to us, we will occasionally post your blog comments, as well as our response, to further the education of our readership. However, our outreach efforts will focus mainly on our own periodic blog posts, which will each describe certain environmental contamination issues faced in the business and estate succession planning arena, ways to plan around these issues, and ways to minimize the unintended transfer of environmental cleanup liabilities to business partners, beneficiaries and fiduciaries. It is our intention to use this blog as the opportunity to begin organizing and coordinating the establishment of “working groups” in various regions throughout California and other states, to jumpstart this BEST PRACTICES approach throughout the country